IRS Junks 'Lookout' Lists at Heart of Tea Party Fracas

The IRS says it has suspended use of the lists at the center of the investigation of agency activity, reports CNBC's Eamon Javers.

The Internal Revenue Service has scrapped controversial screening lists it used to scrutinize conservative and Tea Party groups seeking tax-exempt status, while offering a speedier path for stalled applications, the agency's new chief said Monday.

Use of the so-called be on the lookout (BOLO) lists using partisan names like "Tea Party" and "Patriot" to flag applications for further examination were at the heart of a critical report from the Treasury Inspector General for Tax Administration.

Agency chief Danny Werfel reaffirmed the inspector general's finding that no employees or outsiders intentionally subjected Tea Party and other conservative groups to extra scrutiny.

"While fact gathering is still underway, we have not found evidence of intentional wrongdoing" by anyone outside or inside the IRS, Werfel told a conference call with reporters.

The IRS has been battling critics since May 10, when a senior official publicly apologized for the scrutiny, setting off a probe by the FBI, resignations by top officials and congressional investigations.

In response, President Barack Obama last month fired acting IRS Commissioner Steven Miller and ordered a 30-day review of the matter. At least three other IRS officials have been replaced or placed on administrative leave.

Werfel's full report outlines a new fast-track process for tax-exempt, 501(c)(4) applications stalled for more than 120 days, allowing them to "self-certify" by pledging to not spend more than 40 percent of their activities and expenditures on political activity.

"If they are less than 40, we think they are in a good place to self-certify and move forward," Werfel said, adding that those with 40 percent to 50 percent would likely require IRS review.

Political activity must not be the primary purpose of groups earning 501(c)(4) status, according to IRS interpretation of the law. But the murky definition of "primary" led to some of the shortcuts used by agents that got them into trouble, IRS officials have said.

BOLO Lists Suspended

The use of BOLO lists will also be suspended, Werfel said, noting that the lists were continuing to be used inappropriately when he arrived at the agency last month.

The Treasury Inspector general report focused on Tea Party and conservative groups, but said many of the applicants that were delayed did not necessarily have links to conservative causes.

In an interview with congressional investigators last month, Holly Paz, an official in the Washington IRS tax-exempt unit during the time in question, said the list did not target only conservative groups.

"There were other, liberal organizations that were also specifically listed by name," Paz said.

Werfel said the IRS will soon release redacted versions of other BOLO lists.

Congress is pressuring the IRS to provide additional documents about the agency's targeting of tax-exempt applications. More than a dozen FBI agents have been assigned to the case, and three congressional committees are investigating.

Werfel is set to testify before one of those panels, the House Ways and Means Committee, on Thursday.